**Exhibit
      10.3**





**SEVERANCE
      AGREEMENT AND GENERAL RELEASE**





This **SEVERANCE
      AGREEMENT AND GENERAL RELEASE** (“Agreement”) is made and entered into by SMART ONLINE, INC. (the “Company”) and
      Joseph Trepanier (“Employee”). Throughout the remainder of the Agreement, the
      Company and Employee may be collectively referred to as “the
      parties.”





The
      Company employed Employee as Chief Operating Officer. Employee resigned,
      effective February 18, 2008. The parties desire to conclude the employment
      relationship on mutually agreeable terms and to avoid all litigation relating
      to
      the employment relationship and its termination, and Employee desires severance
      benefits. Accordingly, the parties have agreed upon the terms described
      herein.





Employee
      represents that he has carefully read the entire Agreement, understands its
      consequences, and voluntarily enters into it.





In
      consideration of the above and the mutual promises and good and valuable
      consideration set forth below, the sufficiency of which is acknowledged by
      the
      parties, Employee and the Company agree as follows:





**1.**  **SEPARATION** **.** Employee
      resigned from his employment by the Company, effective February 18, 2008 (the
      “Resignation Date”).





**2.**  **SEVERANCE
      BENEFITS** **.** The
      Company will pay Employee:





**i.**
            an
                amount equal to $27,267.00, less any applicable taxes and withholdings
                (2
                month wage payment);





**ii.**
            an
                amount equal to $2,615.58, less any applicable taxes and withholdings
                (2
                month grossed up benefit premium
                payment).





These
      amounts shall be paid in separate lump sum payments on the first regularly
      scheduled payday following the Company’s receipt of a fully executed copy of
      this Agreement.





In
      addition, the Company will agree to amend the Restricted Stock Agreement between
      the parties dated August 15, 2007 in accordance with the terms of the Amendment
      to the Restricted Stock Agreement, a copy of which is attached hereto as Exhibit
      A





The
      severance and other benefits afforded under this Agreement are in lieu of any
      other compensation or benefits to which Employee otherwise might be
      entitled.





**3.**  **RELEASE** **.** In
      consideration of the benefits conferred by this Agreement, **EMPLOYEE
      (ON BEHALF OF HIMSELF AND HIS ASSIGNS, HEIRS, AND OTHER REPRESENTATIVES)
      RELEASES THE COMPANY, ITS PREDECESSORS, SUCCESSORS, AND ASSIGNS AND ITS AND/OR
      THEIR PAST, PRESENT, AND FUTURE OWNERS, PARENTS, SUBSIDIARIES, AFFILIATES,
      PREDECESSORS, SUCCESSORS, ASSIGNS, OFFICERS, DIRECTORS, EMPLOYEES, EMPLOYEE
      BENEFIT PLANS (TOGETHER WITH ALL PLAN ADMINISTRATORS, TRUSTEES, FIDUCIARIES,
      AND
      INSURERS), AND AGENTS (“RELEASEES”) FROM** **ALL** **CLAIMS AND WAIVES** **ALL** **RIGHTS, KNOWN OR UNKNOWN, HE MAY HAVE OR CLAIM TO HAVE RELATING TO HIS
      EMPLOYMENT WITH THE COMPANY, ITS PREDECESSORS, SUBSIDIARIES, OR AFFILIATES
      OR
      HIS SEPARATION THEREFROM** arising
      before the execution of this Agreement, including, but
      not limited to ,
      claims:
      (i) for discrimination, harassment, or retaliation arising under federal,
      state, or local laws prohibiting age, sex, national origin, race, religion,
      disability, veteran status, or other protected class discrimination, harassment,
      or retaliation for protected activity; (ii) for compensation and benefits
      (including, but not limited to, claims under the Employee Retirement Income
      Security Act of 1974 (ERISA), as amended, the Fair Labor Standards Act of 1938
      (FLSA), as amended, and similar federal, state, and local laws);
      (iii) arising under federal, state, or local law of any nature whatsoever
      (including, but not limited to, constitutional, statutory, tort, express or
      implied contract, or other common law); (iv) arising under the August 15, 2007
      Employment Agreement between the parties or the August 15, 2007 Restricted
      Stock
      Agreement between the parties; and (v) for attorneys’ fees. The release of
      claims set forth in this paragraph does not apply to claims for workers’
compensation benefits or unemployment benefits filed with the applicable state
      agencies.








**4.**  **COVENANT
      NOT TO SUE** **.** Employee
      will not sue Releasees on any matters relating to his employment arising before
      the execution of this Agreement or join as a party with others who may sue
      Releasees on any such claims; provided, however, this paragraph will not bar
      claims for workers’ compensation or unemployment benefits referenced in
      paragraph 3 above, and this paragraph will not apply when prohibited by law.
      If
      Employee does not abide by this paragraph, then: (i) he will return all
      monies received under this Agreement and indemnify Releasees for all expenses
      they incur in defending the action; and (ii) Releasees will be relieved of
      their obligations hereunder.





**5.**  **AGENCY
      CHARGES/INVESTIGATIONS.** Nothing
      in this Agreement shall prohibit Employee from filing a charge or participating
      in an investigation or proceeding conducted by the U.S. Equal Employment
      Opportunity Commission or other governmental agency with jurisdiction concerning
      the terms, conditions, and privileges of his employment; provided, however,
      that
      by signing this Agreement, Employee waives his right to, and shall not seek
      or
      accept, any monetary or other relief of any nature whatsoever in connection
      with
      any such charges, investigations, or proceedings.





**6.**  **COMPANY
      INFORMATION AND PROPERTY** **.** Employee
      shall not at any time after his employment terminates disclose, use, or aid
      third parties in obtaining or using any confidential or proprietary Company
      information. Confidential or proprietary Company information is information
      relating to the Company, the Company’s parents, subsidiaries, or affiliates, or
      any aspect of their business that is not generally available to the public,
      their competitors, or other third parties or ascertainable through common sense
      or general business or technical knowledge. Nothing in this Agreement shall
      relieve Employee from any confidentiality, proprietary information, secrecy,
      non-compete, non-disclosure, non-solicitation, or invention rights and
      assignment obligations under any previously executed agreements.





All
      records, files, or other materials maintained by or under the control, custody,
      or possession of the Company or its agents in their capacity as such shall
      be
      and remain the Company’s property.





**7.**  **RIGHT
      TO REVIEW** **.** The
      Company sent this Agreement to Employee via overnight mail on February 20,
      2008
      and desires that he have adequate time and opportunity to review and understand
      the consequences of entering into it. Accordingly, the Company advises him
      to
      consult with an attorney prior to executing it and that he has seven (7) days
      within which to consider it. In the event that he does not return an executed
      copy of the Agreement to the Company by no later than the 8th calendar day
      after
      receiving it, it and the obligations of the Company herein shall become null
      and
      void.


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**8.**  **CONFIDENTIALITY
      AND NONDISPARAGEMENT** **.** The
      terms and provisions of this Agreement are confidential, and Employee represents
      and warrants that since receiving this Agreement he has not disclosed, and
      going
      forward will not disclose, the terms and conditions of this Agreement to third
      parties, except as required by law. Notwithstanding the above, he may reveal
      the
      terms and provisions of this Agreement to members of his immediate family or
      to
      an attorney whom he may consult for legal advice, provided that such persons
      agree to maintain the confidentiality of the Agreement. Employee represents
      and
      warrants that since receiving this Agreement, he: (i) has not made, and
      going forward will not make, disparaging, defaming, or derogatory remarks about
      the Company or its products, services, business practices, directors, officers,
      managers, or employees to anyone; and (ii) has not taken, and going forward
      will not take, any action that may impair the relations between the Company
      and
      its vendors, customers, employees, or agents or that may be detrimental to
      or
      interfere with the Company or its business.





**9.**  **STIPULATION** **.** Employee
      acknowledges, agrees, and hereby stipulates to the following facts:
      (i) during his employment with the Company, Employee was allowed to take
      all leave and afforded all other rights to which he was entitled under the
      Family and Medical Leave Act (FMLA); and (ii) the Company has not in any
      way interfered with, restrained, or denied Employee’s exercise of (or attempt to
      exercise) any FMLA rights and has not terminated or otherwise discriminated
      or
      retaliated against Employee for exercising (or attempting to exercise) any
      such
      rights.





**10.**  **OTHER** **.** Except
      as expressly provided in this Agreement, this Agreement supersedes all other
      understandings and agreements, oral or written, between the parties and
      constitutes the sole agreement between the parties with respect to its subject
      matter. Each party acknowledges that no representations, inducements, promises,
      or agreements, oral or written, have been made by any party or by anyone acting
      on behalf of any party, that are not embodied in this Agreement, and no
      agreement, statement, or promise not contained or described in this Agreement
      shall be valid or binding on the parties. No change or modification of this
      Agreement shall be valid or binding on the parties unless such change or
      modification is in writing and is signed by the parties. Employee’s or the
      Company’s waiver of any breach of a provision of this Agreement shall not waive
      any subsequent breach by the other party. If a court of competent jurisdiction
      holds that any provision or sub-part thereof contained in this Agreement is
      invalid, illegal, or unenforceable, that invalidity, illegality, or
      unenforceability shall not affect any other provision in this
      Agreement.





This
      Agreement is intended to avoid all litigation relating to Employee’s employment
      with the Company and his separation therefrom; therefore, it is not to be
      construed as the Company’s admission of any liability to him - liability that
      the Company denies.





This
      Agreement shall apply to, be binding upon, and inure to the benefit of the
      parties’ successors, assigns, heirs, and other representatives and be governed
      by North Carolina law and the applicable provisions of federal law.





**CAUTION!
      READ BEFORE SIGNING. THIS AGREEMENT CONTAINS A RELEASE OF ALL
      CLAIMS.**


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**IN
      WITNESS WHEREOF,** the
      parties have entered into this Agreement **** on
      the
      day and year written below.





**EMPLOYEE
      REPRESENTS THAT HE HAS CAREFULLY READ THE ENTIRE** **AGREEMENT,** **UNDERSTANDS
      ITS CONSEQUENCES, AND VOLUNTARILY ENTERS INTO IT.**





/s/
              Joseph Trepanier
            
            2/24/08**Joseph
                Trepanier**
            
            Date**SMART
              ONLINE, INC.**By:
            /s/
                David E. Colburn
            
            2/25/08**David
                E. Colburn**
            
            DateTitle:
                Chief Executive Officer


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